The Washington Post
Crowdfunded start-up Ossic collapses, leaving backers out $2.7 million
The latest hardware venture to amass buckets of crowdfunding money has left more than 10,200 backers $2,708,472 short and without their own pair of 3-D audio headphones.
In a letter to backers on its Kickstarter page, the tech company Ossic wrote that it was shutting down and would not deliver any remaining orders for Ossic X headphones. The company said it had explored other financing options over the past 18 months but would still need more than $2 million more to complete mass production.
Ossic’s flameout also highlighted the challenges faced by tech companies in mass-producing innovative products — such as robots, smartwatches and 3-D printers — through crowdfunding sources, even as experts say platforms such as Kickstarter can be effective tools for getting a company off the ground.
“Hardware is particularly seductive in a lot of ways,” said Ethan Mollick, professor of management at the University of Pennsylvania’s Wharton School. “[Backers] see an example of the thing, and it feels safer preordering. Those all come together to make these things seem easier than they might be.”
A video on Ossic’s Kickstarter page showed people testing out prototypes of what the company dubbed the “first 3-D audio headphones.” The company told backers on Saturday that it had completed 250 of them and began deliveries to some Kickstarter backers. But as of Saturday, Ossic was out of money and shutting down “effective immediately.” It was unclear whether backers would be refunded.
Ossic could not be reached for comment by The Washington Post. An email address on the company’s website was invalid.
David Gallagher, a Kickstarter spokesman, said that when a Kickstarter project is funded, a contract is formed between the project’s creator and backers. Kickstarter is not a part of that contract. Gallagher said more than 144,000 projects have been funded on Kickstarter.
“But obviously not all projects go smoothly,” he said.
If backers decide that a project’s creator hasn’t upheld their end of the contract, backers are free to pursue legal action against the creator, Gallagher said.
Backers of the Ossic X headphones quickly launched a Facebook page to plan for a classaction lawsuit against the company.
In December 2015, Mollick published an independent study of delivery rates on Kickstarter. Mollick found that about 9 percent of Kickstarter projects failed to deliver rewards and that 8 percent of dollars pledged went to failed projects.
Compared with other tech or hardware projects that fell short, Mollick told The Post that Ossic’s headphones were a larger-scale failure, given the campaign’s number of backers and the amount of money raised.
“I’m sure it’s causing heartburn at Kickstarter,” Mollick said.
Still, Mollick noted that hardware projects can be especially difficult to land, with many companies bumping up against design and logistics issues. Mollick also said that one of the most popular reasons tech projects fail is because hardware is often manufactured in China, and that production can end up conflicting with Chinese New Year.
Ossic joined a slew of other projects that also turned heads for their failure to deliver results after collecting whopping amounts of crowdfunded cash.
In January 2017, the makers of the Lily drone ended production after amassing more than $34 million in preorders for 60,000 units, according to Fortune magazine.
And the smartwatch brand Pebble folded in December 2016 after raising nearly $12.8 million on Kickstarter.
Gallagher added that Kickstarter knows hardware projects can be especially challenging to complete, so the company launched an initiative in 2017 for creators to get guidance from engineers.
And to minimize confusion among potential backers, Kickstarter requires that creators show a working prototype on their project page, Gallagher said. Renderings that look like completed products aren’t allowed.
“These rules are part of our effort to make very clear that Kickstarter projects are works in progress,” Gallagher said.